RBI master-direction RBI/DOR/2025-26/238 · 28 Nov 2025
Official title
Reserve Bank of India (Local Area Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 (Updated as on July 1, 2026)
Summary
Check the official recordThe Reserve Bank of India establishes prudential norms for Local Area Banks regarding income recognition, asset classification, and provisioning for advances. Banks must classify assets as standard or non-performing based on objective criteria, including overdue status and account performance. The Directions mandate specific provisioning rates for standard, substandard, doubtful, and loss assets. Banks must maintain robust management information systems for early distress detection and follow board-approved policies for income recognition and provisioning. The rules also specify requirements for derivative contracts, agricultural advances, and restructured accounts. These Directions ensure consistency and transparency in financial reporting for all Local Area Banks.
What you must do
Key dates
Who is affected
Thresholds
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If you do not comply
RBI/DOR/2025-26/238 DOR.STR.REC.157/21.04.048/2025-26 November 28, 2025
Previous Versions
Reserve Bank of India (Local Area Banks – Income Recognition, Asset Classification and Provisioning pertaining to Advances) Directions, 2025 (updated as on July 1, 2026)
Reserve Bank of India (‘Reserve Bank’) is statutorily mandated to operate the credit system of the country to its advantage. In line with the international practices and as per the recommendations made by the Committee on the Financial System (Chairman Shri M. Narasimham), the Reserve Bank has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances portfolio of banks so as to move towards greater consistency and transparency in the published accounts.
In exercise of powers conferred by Sections 21, and 35A of the Banking Regulation Act, 1949, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues these Directions hereinafter specified.
These directions shall be called the Reserve Bank of India (Local Area Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025.
These directions shall come into force with immediate effect.
(1) ‘crop season’ for each crop, shall mean the period up to harvesting of the crops raised, as determined by the State Level Bankers’ Committee (SLBC) in each State;
(2) ‘doubtful asset’ shall mean an asset which has remained in the substandard category for a period of twelve months;
(3) ‘exposure’ shall include all funded and non-funded exposures (including underwriting and similar commitments).
(4) ‘long duration crops’ shall mean crops with crop season longer than one year;
(5) ‘loss asset’ shall mean an asset where loss has been identified by a bank or internal or external auditors or the inspection conducted by the Reserve Bank, but the amount has not been written off wholly by the bank;
(6) ‘non-performing asset’ shall mean an asset, including a leased asset, which has ceased to generate income for a bank;
(7) ‘out of order status’ – a cash credit / overdraft (CC / OD) account shall be treated as ‘out of order’ if any of the following conditions are satisfied:
(i) the outstanding balance remains continuously in excess of the sanctioned limit / drawing power for 90 days;
(ii) the outstanding balance is less than the sanctioned limit / drawing power but there are no credits continuously for 90 days;
(iii) the outstanding balance is less than the sanctioned limit / drawing power but credits are not enough to cover the interest debited during the previous 90 days period.
Explanation 1: ‘Previous 90 days period’ referred to in sub paragraph (iii) above shall be inclusive of the day for which the day-end process is being run.
Explanation 2: The definition of ‘out of order’ shall be applicable to all credit products being offered as an overdraft facility, including those not meant for business purpose and / or which entail interest repayments as the only credits.
(8) ‘overdue’ status – any amount due to a bank under any credit facility shall be treated as ‘overdue’ if it is not paid on the due date fixed by the bank.
(9) ‘provisioning coverage ratio (PCR)’ shall mean the ratio of provisioning to gross non-performing assets and indicates the extent of funds kept aside to cover loan losses;
(10) ‘security’ shall mean tangible security properly charged to the bank and will not include intangible securities like guarantees (including State government guarantees), comfort letters, etc.
(11) ‘short duration crops’ shall mean crops which are not ‘long duration’ crops;
(12) ‘substandard asset’ shall mean an asset, which has remained NPA for a period less than or equal to twelve months;
(13) ‘unsecured exposure’ shall mean an exposure where the realisable value of the security, as assessed by a bank / approved valuers / the Reserve Bank’s inspecting officers, is not more than ten percent, ab-initio, of the outstanding exposure.
(14) ‘wilful defaulter’ shall mean the same as defined under the Reserve Bank of India (Local Area Banks – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025.
The definitions of the terms ‘micro enterprises’, ‘small enterprises’, and ‘medium enterprises’ shall be in terms of the circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 on ‘Credit flow to Micro, Small and Medium Enterprises Sector’ as updated from time to time.
The terms ‘Commercial Real Estate (CRE)’, and ‘Commercial Real Estate – Residential Housing Sector (CRE - RH)’, shall have the same meaning assigned to them in the Reserve Bank of India (Local Area Banks – Credit Facilities) Directions, 2025.
All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934, or the Companies Act, 2013, or any statutory modification or re-enactment thereto or other regulations issued by the Reserve Bank of India or the Glossary of Terms published by Reserve Bank or as used in commercial parlance, as the case may be.
(1) the policy of income recognition shall be objective and based on record of recovery rather than on any subjective considerations;
(2) the policy shall specify the level to which the floating provisions can be created;
(3) circumstances which would be considered as extraordinary for the utilization of floating provisions for making specific provisions in impaired accounts;
